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July 16, 2013

Schwab Q2 Profit Drops 11%; Sales Improve 4%

Asset management and administration fees experience a 15% year-over-year increase and total $572 million in the latest period

Charles Schwab (SCHW) reported second-quarter earnings early Tuesday of $0.18, down from $0.20 a year ago and $0.01 below consensus views. Net income was $233 million, an 11% drop from last year.

Adjusted revenue rose 4% to $1.34 billion, which surpassed analysts’ estimates. Schwab says, however, that it had a nearly 9% jump in expenses, which (excluding interest) were $925 million in the period.

“While year-over-year growth in total revenues and net income for the second quarter was limited by last year’s $70 million pretax gain, the signs of our building earnings power are clear,” said CFO Joe Martinetto, in a press release. “Strength in asset gathering and advice enrollments helped asset management and administration fees grow 15% over the second quarter of 2012.”

Schwab's net new assets hit $22.6 billion in the latest period. This was a 41% gain from a year ago, but represented a drop of 47% from the prior quarter.

Second-quarter trading revenue improved 7% from last year to $235 million. These sales now represent less than 20% of total revenue.

Asset management and administration fees rose 15% year over year to $572 million. Daily average revenue trades increased close to 6%.

“Trading results were in line with expectations, and asset management fees were ahead of expectations driven by strong growth in Advice Solutions assets,” according to a report of Sterne Agee analysts Jason Weyeneth, CFA, and Alex Levine. The company’s pretax profit margin, though, fell nearly 31% in the most recent period from 33.7% a year ago.

“We’re still aiming for full-year 2013 expense growth that allows for both increased investment in our clients and improvement in profit margin and earnings for the year,” Martinetto said.

Charles Schwab said that in the second quarter its Advisor Services unit launched Schwab PortfolioCenter Hosted, a cloud-based version of Schwab’s PortfolioCenter that gives independent RIAs the ability to outsource their technology infrastructure and management to Schwab. In addition, the unit rolled out Schwab OpenView MarketSquare, a website that compiles feedback and ratings from independent RIAs on technology vendors and products.

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